Creative Realities Stock: Extremely Cheap With A 201% Upside (NASDAQ:CREX)


Financial stock exchange market display screen board on the street

Nikada

The following segment was excerpted from this fund letter.


Creative Realities (NASDAQ:CREX)

Creative Realities is a digital signage installer and digital signage software operating system.

Creative Realities has completed two major acquisitions since 2019 (Reflect Systems in 2022 and

Pillar

Rating

Comments

Pillar 1 – High Quality Business Model

B +

• The core display installation business is relatively commoditized and competitive. Gross margins in this business are likely stable at around 40% but barely cover the company’s overheads.

• The SaaS offering is completely unappreciated by the market. This is an incredibly sticky business, with almost zero churn due to the fact that the operating system is essential to running the digital assets.

• The SaaS business is steadily growing at a 70–80% gross margin, and there are huge opportunities to sell their software through other third-party installers

(channel partners) as well as through advertising and interactive upcharges.

Pillar 2 – Exceptional Management

C+

• Recent equity issuance and missteps in their dealings with their largest equity and debt owner, Pegasus Capital, do not reflect well on management. Both the CEO and the CFO did participate in the equity offering, suggesting they believe the stock is cheap at these levels.

• I do respect them for shooting down the Pegasus Capital takeover bid, as I too believe it underpriced the equity in the company.

• A solid combination of an excellent salesman in CEO Rick Mills and an excellent finance mind in CFO Will Logan

Pillar 3 – Substantial Long Term Growth Prospects

A-

• The company has done most of the difficult work of putting together a full software offering and selling that to a few large customers. At this point they just need to execute on delivering on those deals.

• Software offering as multiple points of optionality, including channel partner sales, up sales on advertising and interactive functionality.

• The digital display industry is still very early in its progress to convert billboards, menu boards, and other media devices over to digital, with the industry forecasted to growth at a 15-20% for the next decade.

Pillar 4 – Reasonable Valuation

A+

• EV/EBITDA for NTM = 4.4. Revenue Growth +50% over the next 12 months.

• As their SaaS business scales to a larger portion of revenues their Gross Margins will expand from low 40% up towards 50%

• The company is forecasting they will be FCF positive in Q4 2023 or Q1 2024. They believe there is little incremental investment required to scale the business on a go forward basis.



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